Prosecutors accuse Menendez of personally pressuring Sebelius and other federal officials to intervene in a multimillion-dollar dispute his friend, Salomon Melgen, had with the Centers for Medicare and Medicaid Services over his billing practice for the eye drug Lucentis. The indictment charges Menendez with accepting political donations and other perks from Melgen in return for helping him with the dispute.
The two men maintain they broke no laws and that Menendez was genuinely concerned about both the fairness of CMS' billing practices and how the rules gave drug companies a windfall.
Sebelius told the jury Tuesday that the 2012 meeting with Menendez was arranged by then-Senate Majority Leader Harry Reid, a Nevada Democrat, and involved Menendez's "unhappiness that there was a CMS policy that Sen. Menendez felt was unclear and unfair to providers."
It stood out to her, however, because it was the only instance she could recall Reid asking her to come to a meeting involving another member of Congress in 5½ years at the agency.
But she also could not recall Menendez or Reid directly mentioning Melgen's name in the meeting.
"I think (Menendez) wanted me to do something differently than the (CMS) staff had previously done -- which was take some action to clarify this procedure or change some action that had been taken on the billing issue," Sebelius explained.
"It was an issue I was urged not to discuss with directly with Sen. Menendez until out of our department," she added, stating that an individual billing dispute was not something she generally dealt with as the head of an agency of roughly 90,000 employees and a budget just under $1 trillion.
At the time, Melgen was in the process of contesting the $8.9 million Medicare overbilling charge, and the general counsel of HHS advised Sebelius she could safely take the meeting because it was on appeal with an independent agency -- a point the defense team tried to emphasize to show Sebelius had no power to change the result of the dispute and the senator didn't present her with a formal "ask."
"I think it was not a very satisfactory meeting," she said. "There wasn't a mutual resolution -- we came in with a dispute and left with the same dispute after about 30 minutes."
The core of the dispute surrounds Melgen's so-called "multi-dosing" of Lucentis. Federal regulations at the time approved the drug for "single-use" only, meaning that each vial should only be used for a single patient, but the doctor used the "overfill" from the vials to treat up to three patients -- and then billed Medicare three times, as if a separate vial was purchased for each dose.
Earlier Tuesday, former CMS Administrator Marilyn Tavenner testified about a separate 2012 meeting and phone call she also had with Menendez about the agency's policy on multi-dosing, which she understood would "benefit" Melgen if changed.
Tavenner told jurors that her staff had given her a heads-up about Menendez's interest in Melgen's case, leading her to "connect the dots" between Melgen's case and the policy even though Menendez never mentioned Melgen's name in their conversations.
Tavenner said she warned Sebelius, her boss, that Menendez had "not been happy" with CMS' determination that the billing policy was clear and would likely escalate the issue to Sebelius next.
She told the jury that she couldn't remember another time in the five years that she served in CMS that a US senator elevated an issue of this kind to her boss.
This story has been updated.